Brent oil premium to Dubai may fall on Libya resolution-JPMorgan

Brent crude's premium to Dubai may fall in the months ahead as a sudden resolution to the Libyan conflict could result in a faster-than-expected recovery in the OPEC member's oil production, J.P. Morgan analysts said.

Brent crude’s premium to Dubai may fall in the months ahead as a sudden resolution to the Libyan conflict could result in a faster-than-expected recovery in the OPEC member’s oil production, J.P. Morgan analysts said.

“A change in view to a more rapid recovery could easily reduce forward Brent-Dubai crude differentials by $0.50-$1.00 per barrel or more as well as impacting Brent time spreads and refining margins,” analysts at the bank led by Lawrence Eagles said in a note released on Monday.

“With low-key political negotiations clearly taking place, it is important to be prepared for a sudden resolution that could quickly change market expectations, and possibly forward pricing relationships.”

Libya‘s crude production will begin to ramp up slowly at the turn of the year, reaching 1 million barrels per day (bpd) by end 2012, although it is still short of the 1.6 million bpd output before the war, J.P. Morgan said.

The Brent/Dubai Exchange of Futures for Swaps (EFS) , an indicator of the premium commanded by light sweet crude over heavy sour supplies, shot to a 6-1/2-year high after Libya‘s civil war halted production. The August EFS was at $6.32 a barrel on Monday.

“Clearly, the Libyan outage has negatively impacted the attractiveness of refining Brent-related crudes in Asia,” it said, adding that the Singapore Brent-Dubai margins differential widened by $3.29 a barrel in the second quarter of this year compared with the fourth quarter of 2010.

The bank said it expects the differential to narrow by only about $0.20-$0.30 a barrel each quarter through the fourth quarter of 2012. (Reporting by Florence Tan; Editing by Ed Lane)